If you are a property developer or investors in Victoria, staying informed about the Vacant Residential Land Tax (VRLT) is essential. With recent changes expanding its reach across the state, engaging a trusted accountant in Box Hill can help you navigate compliance, avoiding penalties, and strategically plan your property investment.
What it is
The Vacant Residential Land Tax (VRLT) is an annual tax introduced by the Victorian Government from 1 January 2018 with the aim of encouraging more efficient use of residential properties. It aims to discourage property owners from leaving homes or lots empty while addressing housing supply challenges.
Unlike ordinary land tax, VRLT is an additional charge calculated on the Capital Improved Value (CIV) of the property — meaning it applies to the full improved value, not just the land.
Land that is exempt from land tax, such as a principal place of residence, primary production land, or other exempt uses, is also exempt from the Vacant Residential Land Tax (VRLT).
How it is implemented
Scope and timing
- Initially (2018–24) the VRLT applied only to vacant residential land in Melbourne’s inner and middle suburbs (specified council areas).
- From 1 January 2025, the scope broadens: it applies to vacant residential land anywhere in Victoria.
- From 1 January 2026 there is further expansion: undeveloped residential-zoned land in metropolitan Melbourne that has remained undeveloped for a continuous period of five years or more becomes liable.
What counts as “vacant”
- A residential property (with a home on it) is “vacant” if it has not been used and occupied for at least 6 months in the preceding calendar year by the owner, a permitted occupant, or a lessee (including short-term letting), provided the arrangement is not mainly for avoiding the tax.
- Properties under construction or renovation: If the home has been under construction or renovation for two years or more, the land may be liable.
- Uninhabitable homes: If a residence has been uninhabitable for two years or more, it may be treated as vacant.
Tax rates
- Up to 2024: A flat rate of 1% of CIV for liable vacant residential land in inner and middle Melbourne.
- From 1 January 2025: A progressive rate based on consecutive years of liability:
- 1st year: 1% of CIV
- 2nd consecutive year: 2% of CIV
- 3rd (and further) consecutive years: 3% of CIV
- From 2026 for undeveloped land in metro Melbourne: 1% of CIV for such land that has remained undeveloped for five years or more.
The following table provides an overview of VRLT implications.
| Feature | Up to 2024 (Current Rules) | From 1 January 2025 | From 1 January 2026 |
| Type of land affected | Vacant residential land with an existing dwelling | Vacant residential land with an existing dwelling | Undeveloped residential-zoned land (no dwelling built) |
| Geographic scope | Inner and middle Melbourne | All of Victoria | Metropolitan Melbourne only |
| Vacancy or inactivity requirement | Property must be vacant for 6+ months in the previous calendar year | Property must be vacant for 6+ months in the previous calendar year | Land must have remained undeveloped for 5+ continuous years |
| Tax rate | Flat 1% of CIV | Progressive rates: 1st year: 1% 2nd year: 2% 3rd+ year: 3% | Flat 1% of CIV |
| Key purpose | Discourage vacant homes in inner Melbourne | Broadened to reduce statewide housing vacancy | Discourage long-term land banking in metro areas |
| Notable exemptions | Principal place of residence, holiday homes, renovation/construction, deceased estate, temporary absence, etc. | Same exemptions continue statewide | Same exemptions; applies only to residential-zoned land |
| Link with Land Tax | Additional to standard land tax | Additional to standard land tax | Additional to standard land tax |
| Notification deadline | 15 January following the calendar year of vacancy | 15 January following the calendar year of vacancy | 15 January following the calendar year of inactivity |
Notification and compliance
- Owners must notify the State Revenue Office (SRO) if they own land that may be liable, typically by 15 January of the year following the calendar year of vacancy.
- The assessment is issued based on ownership as at midnight 31 December of the preceding year.
- Exemptions are available (see next section) and these need to be claimed via notification.
What is its impact (for property developers/investors)
Holding costs increase
For investors or developers holding residential-zoned land that is vacant or under-utilised, the VRLT adds a meaningful cost. The progressive rate means that the cost escalates the longer the land remains vacant. For example, if a property’s CIV is $2 million and it remains vacant for two consecutive years, the VRLT in year two would be around 2% × $2 million = $40,000 (ignoring other tax costs).
Incentive to activate or develop
The tax is clearly designed to encourage activation of residential land: either developing it, leasing it, occupying it, or selling it — rather than letting it sit idle. For developers this means that holding undeveloped zoned residential land long-term without progress may become financially less attractive.
Broader geographic exposure
From 2025 onwards the tax applies state-wide (not just inner Melbourne), meaning that investors in regional Victoria or outer suburbs must also be aware. From 2026 the extension to undeveloped land means that even raw (or partially developed) residential-zoned parcels are in scope. This increases the compliance risk and cost of holding for long periods.
Impact on valuation and planning
Because the tax is calculated on CIV, and the liability may reset upon change of ownership (the progressive rate resets on a new owner) it can influence transaction timing, exit strategies, development start-dates, hold strategy and cash flow planning.
Compliance risk
Failing to notify, or incorrectly claiming an exemption, may lead to penalties (interest, penalty tax). The SRO has powers to amend, audit and impose penalties. Checking property status (occupancy, development progress, documentation) becomes imperative.
A case study
To help investors and developers gain a clearer understanding of how this tax scheme operates, our experienced Box Hill tax accountant has developed the following hypothetical scenario.
- An investor acquires a residential-zoned parcel in metropolitan Melbourne at the start of 2024. The parcel has a home on it, but the investor does not occupy it or lease it. It remains vacant for more than six months in the 2024 calendar year.
- By 31 December 2024 the investor still owns the property and it remains unused.
- Because the land was vacant in 2024, the investor is liable for VRLT in 2025. In the first year of liability (2025) the tax rate is 1% of the CIV. Suppose the CIV is assessed at $1.5 million — the VRLT would amount to $15,000.
- The investor does not lease or occupy the property during 2025 either. The property remains vacant for the full calendar year. At the end of 2025 the property is still vacant, so at 31 December 2025 the land is again vacant and owned by the same owner. Therefore liability continues into 2026 and the rate escalates to 2% of CIV (so $30,000 if CIV unchanged) in 2026.
- If still vacant through 2026 and into 2027, the 2027 tax would be 3% of CIV ($45,000 if unchanged).
- Alternatively, if the investor sells the property during 2026 and settles before end of that year, the progressive rate resets. For example, if they transfer ownership late in 2026, the new owner’s liability may start at 1% in the first year of their ownership (depending on timing).
- If exemptions apply (e.g., the property is genuinely a holiday home used by the owner/family for at least 4 weeks a year, or is under genuine construction with delays beyond control), then the investor may avoid or defer liability — but documentation and timing matter.
Conclusion
For property developers and investors, the Vacant Residential Land Tax (VRLT) is a significant strategic and financial consideration when planning land holdings and development projects. Whether you’re holding stock prior to construction, leasing properties, or managing staged exit strategies, the timing and occupancy status of each property can have a direct impact on your tax position.
With the stagnating cash rate and ongoing economic uncertainty, now is the ideal time to partner with an experienced accountant in Box Hill to review how VRLT applies to your property portfolio and identify opportunities to reduce risk.
At Infinity Solution Tax Plus, our comprehensive range of accounting and advisory services is designed to help you achieve the best possible outcomes for your business and investments.
Contact us on (03) 7046 2254 or visit us at Level 2B, 818 Whitehorse Rd, Box Hill, VIC 3128 to discuss your business case today.
Disclaimer: The information contained in this article is general in nature and does not constitute financial or taxation advice. You should seek advice tailored to your specific circumstances from a registered tax or financial adviser.
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